2020 ended up being a big year for capital raising outside of the traditional IPO process. But while SPACs got most of the headlines, it was also a breakout year for another IPO alternative: Reg A+.
It’s now been six years since Reg A+ went into effect. The process was meant to make it easier for small companies to raise money in the secondary markets and give retail investors access to an asset typically reserved for Wall Street institutions.
Though results were initially mixed, it appears as if the process may have found its footing.
“We saw companies raise $30 million Series A rounds online with 10,000 retail investors [in 2020],” said Darren Marble, CEO at Issuance, a technology provider for Reg A+ issuers. “I think for the first time we’re seeing companies that have every capital raising option available to them consciously leaning to the Reg A+ ecosystem, which is a sign that we’ve arrived.”
Marble estimates roughly $3 billion has been raised in Reg A+ offerings since the regulation began in June 2015. That number is expected to increase in 2021, in part because of the SEC’s recent increase of the Reg A+ capital raising limit from $50 million to $75 million. The change is expected to go into effect on March 15.
“What that means is that we’re now going to see even larger companies come into the industry that might previously not have pursued a Reg-A because they wanted to raise more than $50 million. So this change will drive a higher quality caliber issuer into the industry,” Marble said.
“From the start, we’ve always been a big proponent of Reg A+ and are excited to see it enter this new phase,” said Jason Paltrowitz, executive vice president of corporate services at OTC Markets Group. “We want companies to know that just like Reg A+ is a capital-raising alternative to the traditional IPO, OTC Markets’ disclosure-based, dealer markets are better suited to newly traded public companies.”
The benefits of a Reg A+ offering are two-sided. For entrepreneurs, it allows them to acquire new customers while also raising money. And for investors, it provides access to companies much earlier than the traditional IPO process.
“It’s a way for companies to turn their customers into investors,” he said. “Look at companies like DoorDash, Peloton, or Sonos. All these big companies are built on the backs of consumers. The only time those consumers can buy into the deal is after those companies complete an IPO. [Reg A+] is a marketing tool with capital raising as a side effect.”
This story originally appeared on Benzinga.
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